Morocco’s Monetary Policy Transmission in the Wake of the COVID-19 Pandemic

By Maximilien Queyranne, Daniel Baksa, Vassili Bazinas, Azhin Abdulkarim

October 21, 2021

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Maximilien Queyranne, Daniel Baksa, Vassili Bazinas, and Azhin Abdulkarim. Morocco’s Monetary Policy Transmission in the Wake of the COVID-19 Pandemic, (USA: International Monetary Fund, 2021) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper finds that the neutral interest rate has been on a downward trajectory in Morocco since the global financial crisis and may have fallen in the wake of the pandemic. In that context, monetary policy transmission to output and prices appears relatively muted given limited exchange rate flexibility until recently. Also, monetary policy transmission to some market rates has somewhat weakened in the wake of the pandemic. A lower natural rate and low policy rates raise the question of whether further rate reductions would impair the banking system. We find that the sensitivity of cash demand to deposit rates is low, implying limited risks that banks would lose funding with further reductions. A reliance on checking and savings accounts for funding may impair monetary pass-through, however. If monetary policy reaches its effective lower bound, limited and credible recourse to an asset purchase program could usefully complement conventional measures and strengthen monetary policy transmission under an inflation-targeting regime with a flexible exchange rate.

Subject: Central bank policy rate, Deposit rates, Exchange rates, Financial services, Foreign exchange, Real interest rates, Yield curve

Keywords: Central bank policy rate, Deposit rates, Exchange rates, Global, IMF working papers, Maghreb, Monetary policy, Monetary policy shock, Monetary policy transmission, Neutral interest rate, Real interest rates, Transmission to the government yield curve, Unconventional monetary policy., Yield curve

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/249
Stock No:

WPIEA2021249
ISBN:

9781589067264
ISSN:

1018-5941

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